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Finally, a Rebound For OilCrude Oil has rebounded back to above $25 per barrel, with a 25% gain for the day. This is one of the biggest single day gains in oil’s history. This rebound comes after WTI had seemingly hit rock bottom, reaching $20/barrel just a day earlier. Similarly, Brent oil also recovered from a near 17 year low, back up to $27 a barrel. WTI had been consolidating at the $30 mark following its massive sell-off earlier in the month, after trade negotiations between the OPEC alliance and Russia collapsed, and Saudi Arabia announced it would be increasing its oil production up to 10 million barrels a day. Immediately following this announcement, oil crashed from $45 to $30 per barrel. Analysts were unsure of just when oil would bottom out, speculating that it could fall as low as $20/barrel. And after a period of brief consolidation it did just that, fuelled by the sudden rise in severity of the coronavirus pandemic. In a previous article, I said that crude oil was falling with no bottom in sight. And with today’s rebound, it seems that bottom may have finally been found. However, with the current market volatility, there are absolutely no guarantees. Large swings in either direction have become commonplace, and it seems unlikely that oil will make any real recovery due to the current market sentiment. Despite these strong gains for the day, it is unlikely that oil will make any sort of significant recovery, as the trade war still rages on. As the de facto leader of the OPEC alliance, Saudi Arabia is committed to reducing the price of oil in order to undercut Russia, and are showing that they are willing to suffer lower profits to gain more customers. As well as this, there is also just less demand for oil with the coronavirus pandemic causing people to stay at home under self-isolation. With public gatherings now banned in a significant number of countries, travel being limited, and social distancing being preached, there are less and less opportunities for people to spend fuel. Many countries have now introduced extremely strict travel restrictions, effectively closing their borders. Just yesterday both Australia and New Zealand announced that they would be closing their borders to all travellers except citizens and permanent residents. The US-Canada border was also closed, to the mutual agreement of both governments. This reduction in vehicular travel, from cars to planes, has caused the demand for oil to drop sharply, with airlines having been the hardest hit. In New Zealand, the government has offered a $900 million loan for Air New Zealand, in order to keep it afloat. It has also stopped Air NZ stocks from being sold. These announcements were made after the NZ Dollar plummeted, dropping down to an unprecedented 55 cents against the US Dollar. A combination of both the USD’s current strength as the only currency gaining value, as well as the Kiwi Dollar’s trademark volatility and reputation as a high risk asset, and the result could only have been disaster.
TVC:USOIL
by BlackBull_Markets
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The Only Thing Going Up in These MarketsThe US Dollar has been making sharp moves as the only market trading in the green in the current economic crisis. On the US Dollar Index (DXY), the greenback has been living up to its name by making steady gains since the 9th of March, rising from below 95 points to above 101, the highest it has been since 2017. This gain in the USD has been due to the fact that investors are now pulling out of other markets due to their extreme volatility, and withdrawing it back to liquid cash. The global economic uncertainty has caused the markets to fall with no bottom in sight. The Trump administration recently announced a stimulus plan of $1 trillion, the largest of any country, as a response to the current chaos in the markets. As part of this plan, the government said they were talking about sending cheques of up to $2000 per month in order to offset loss of income, as well as being able to defer up to $1 million in income taxes. These government interventions come after US stocks officially entered bear market territory upon the market open this week, with the Dow Jones Industrial Average having its second largest single day drop in terms of percentage in history. The Dow Jones has now fallen below the 20,000 point mark, erasing all gains made in the last 4 years in just one month. All 3 major stock indices, the Dow, NASDAQ, and S&P 500 have all fallen more than 20% for the month. And now the New York Stock Exchange has been temporarily closed, with plans for move entirely to electronic trading starting from next week’s market open as a precautionary measure. Similarly, the price of WTI Crude is still falling dangerously, now falling below the $21 per barrel mark, and looking set to hit $20 very soon. There is growing concerns that the demand for oil will continue to drop, as more and more travel restrictions are put in place. People are being asked not to go to work, not to go to public places, and generally stay at home as much as possible. Of course there is also the continuing price war that Saudi Arabia has started, after the collapse of the negotiations between the OPEC alliance and Russia, which is what caused the massive price drop from $45/barrel to begin with. After that initial news crude oil plunged straight down to $28/barrel, before recovering slightly and consolidating precariously just above the $30 mark. However in recent days oil has begun to fall again, falling straight below $25 following stricter restrictions being placed in the US such as the US-Canada border being closed. Despite these unprecedented changes it seems that the global economy is headed towards an inevitable recession that no country can avoid. While most are still waiting for next month’s jobs release data before making the official call, the general sentiment is that we are already in a global recession. All attempts made by the world’s governments to offset the economic damage boost spending have only been meet with pessimism as the pandemic worsens with no clear end in sight.
TVC:DXY
by BlackBull_Markets
GBP/USD Hits 6-Month Low Following £300 Billion AnnouncementThe British Pound fell to its lowest level since September 2019, hitting 1.20150 against the US Dollar, but managed to recover above the 1.2100 threshold after a new package was announced by the UK government. In one of his first moves since becoming Chancellor of the Exchequer, Rishi Sunak announced that the UK government would be giving away £330 billion of loans to businesses, in order for them to offset the income loss from the impacts of the coronavirus. This comes just one week after the March 2020 Budget, which already included a £30 billion package, £12 billion of which was allocated to fighting the economic impact of the coronavirus. However, the Labour party has criticized the move as not being enough for workers and renters, as it only covers businesses, and does not cover employees who are being laid off and losing their incomes. While Sunak has promised a separate package for workers, he had nothing further to say about it in today’s address. Workers who are still employed will receive the benefits from the business loans, but those who are laid off, cannot work due to being sick, or who work shifts/gigs will suffer heavily. There is also nothing in terms of easing rent and utilities. In a news conference yesterday, Prime Minister Boris Johnson urged all UK citizens to avoid all non-essential contact with others, and all non-essential travel. He also advised people to not go to public places such as pubs and restaurants, but stopped short of actually ordering them to close down. As the number of deaths in the UK are now at 67, with the number of cases rising to 1950. However, the actual number of cases is estimated to be anywhere from 35,000 to 50,000. This is a stark increase from just two days ago, when there were only 35 deaths. These rapid increases have caused the public, concerned that the UK is headed for a similar trajectory as Italy, to criticise the current measures as not being enough. Italy rapidly became the centre of the worst epidemic in Europe, with over 31,000 confirmed cases, and over 2,500 deaths. The number of cases exploded due to the fact that medical services were unable to handle the large number of initial cases, as well as the fact that a large percentage of Italy’s population are aging. Citizens are pleading for Britain to do the same as Italy, which quarantined the entire country and closed all shops except for supermarkets and pharmacies, as well as a ban on public gatherings and travel restrictions.
by BlackBull_Markets
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Panic Sell ContinuesYesterday, the US Federal Reserve cut rates by a full 100 basis points, bringing the interest rate down to almost 0%. The interest rate for the US Dollar is now officially 0.25%, but is effectively zero. In addition to this, the Fed also announced a $700 billion quantitative easing program. This is comprised of at least $500 billion in US Treasury securities, as well as another $200 billion in government mortgage-backed securities. Both of these measures were unprecedented moves, drastic measures taken in an attempt to ease the current economic panic and stop the massive selloffs being made. However, they did almost nothing to ease investors’ fears, as trading was temporarily halted for the second time in recent weeks on the market open, after stock indices immediately crashed. The circuit breakers that trigger after indices fall below a certain percentage were automatically activated again as the markets dropped over 7% upon opening. The Dow Jones suffered its worst single trading day in history in terms of points drop, losing 3000 points. In terms of percentage loss it is now the second worst, at 13%. It is now rapidly approaching the 20,000 point mark, an almost 10,000 point drop for the month. By reducing the interest rate to 0%, the Fed is incentivising spending as holding onto cash no longer generates interest. But despite this tremendous effort to bolster the economy investors recognised that it will still not have much of an impact. No matter how much incentive the Fed gives people to spend money, there is still ultimately little they can do if people are unable to actually go out and spend money, if they’re being asked to stay at home. In fact, this move may have made investors panic more, as it is the largest set of single day moves the Fed has ever taken, and was taken ahead of the market open, instead of during its regular meeting on Tuesday and Wednesday. Investors are even pulling out of gold, the traditional safe haven asset. As stricter measures continue to be introduced to stop the spread of the virus, this situation will only become worse as well, as people begin to prepare for a new life under quarantine. Apart from self-isolation, social distancing is now being championed as the best way to stop the spread of the coronavirus. This is defined by staying outside of spitting distance of other people, and avoiding all non-essential contact. Also included in that are such measures as working from home, avoiding large gatherings, and not traveling unless absolutely necessary. Many countries have closed now their borders, such as Canada, which is now stopping all foreign travellers from entering the country. New Zealand has also introduced some of the strictest measures, requiring all travellers into the country to self-isolate for 14 days upon arrival. Prime Minister Jacinda Ardern has also called for all gatherings of 500 or more people to be cancelled, either indoors or outdoors.
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by BlackBull_Markets
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Pound Suffers 4th Consecutive Day of LossFor the 4th day in a row, the British Pound has been on the downside. Following the pattern of practically every market, including stocks, currencies, and commodities, the GBP slid down to fresh lows, dropping all the way down to $1.2518 against the US Dollar. Interestingly enough, the USD has actually strengthened, as one of the few markets going up in current times, while gold, the traditional safe haven asset, has gone down instead. One of the reasons for this is that people are liquidating gold in order to pay off margin calls for other trades, which is also resulting in it being converted to dollars instead. As well as this, the Dollar is also still generating interest, while gold does not. These reasons are why the yellow metal has gone down, reversing earlier gains and defying predictions that it would continue to rally. In the UK, the death toll from the coronavirus has hit 10, with just under 600 confirmed cases. However, officials are warning that the actual number of infections could be anywhere from 5,000 to 10,000. Newly appointed Chancellor of the Exchequer, Rishi Sunak, has already had a rough first month on the job as he has had to contend with the coronavirus. He is expected not to proceed with the previously announced tax hike in light of the current crisis. Meanwhile Prime Minister Boris Johnson has announced new measures, as the government now moves to the ‘delay’ phase of combatting the coronavirus. However, these measures do not include the shutting down of schools, or banning of public gatherings. While Johnson argued that it was crucial to get the timing right for stricter measures, some have viewed these current moves as not enough. While Ireland has closed schools and other public facilities, Scotland has restricted mass gatherings, and the US has suspended all major sport and Broadway performances, Britain seems to be trying to keep things as normal as possible for the time being. Officials in Britain are arguing that people could tire of such measures after a few weeks. Instead, amongst the soft measures introduced are that those with a continuous cough are only being asked to self-isolate for 7 days, schools are only being advised to cancel trips abroad, and people over 70 and those with illnesses not to go on cruises. Some experts have cited Italy, a close neighbour, as evidence of how quickly the virus can spread. Italy very quickly became the country outside of China with the largest number of deaths, causing the entire country to come under lockdown. The United Kingdom is also currently exempt from the 30-day travel ban announced by US President Donald Trump yesterday, which included all other European countries. As the UK is no longer part of the European Union, they were not affected by the announcement.
by BlackBull_Markets
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What Caused This Market Crash?As the US market opened, everyone knew that the only direction to go was down. The only question was how far. However, no one could have predicted that the Dow Jones Industrial Average would drop 2,014 points over the course of the trading day, a one day drop of almost 8%. It was a drop so bad that it called markets to be halted for 15 minutes, stopping trading completely in order to prevent it from dropping any further. The other two major US stock indices, the NASDAQ and S&P 500, followed suit with similarly shocking drops of 7.3% and 7.6%, respectively.The question is, what has caused this extreme drop in virtually every market? As expected, the market had already been bearish on all fronts since the beginning of last month due to the coronavirus, causing some of the biggest market movements in history in just the last few weeks. The Dow had just dropped over 1000 points just two weeks earlier. The coronavirus had already presented itself as a significant threat, and has since only continued to become more deadly. For one, the proper arrival of the virus in the States, and the Trump administration’s subsequent efforts to combat it, have not produced any faith whatsoever. The first thing President Trump did was go in front of the press and say that there were only about 10 cases in the country when there were 52 reported cases at the time, and claim that a vaccine was on the way, which a White House representative had to later correct and say he meant a vaccine for the Ebola virus. Then, when the threat of the virus could be ignored no longer, the next thing he did was to assign Vice President Mike Pence as head of the coronavirus task force, supplanting the Secretary of Health and Human Services Alex Azar. Pence has had to be brought up to speed on everything regarding a virus which is fast spreading and could very easily grow out of control. Next, cities and states across the country reported that they still did not have enough test kits to be able to track the spread of the virus. Trump’s chief of staff, as well as many other senior officials, have entered self-isolation after coming in contact with infected individuals. Most recently, Trump and Pence attended an event where an individual with the coronavirus was present. White House representatives have said that Trump has not been tested for coronavirus. Investors to take these actions as evidence that the Trump administration is incapable of combating this crisis effectively, and the result of their low faith can be seen in the stock market. However, this week’s opening crash was due to a variety of factors, not just the coronavirus scare. Of course, the other biggest factor that caused the markets to crash was the drop in oil. As covered in yesterday’s article, both WTI crude and Brent oil experienced one of their biggest drops in 30 years, to prices not seen since the Gulf War. Interestingly enough, crude oil has now made a slight rebound. After hitting a low of $28 per barrel, WTI has now come back up above the $30 mark and seems to be holding steady for the time being. It was miniscule to say the least, but the price seems to at least have stabilised again after what was feared to be a free fall drop with no floor the previous day. As America is the largest producer of oil in the world, Saudi Arabia’s forced price war could cause many oil businesses in the US to lose their jobs, if these prices are to continue. Outside of the US, Italy has now spread its quarantine to the entire country, affecting 60 million people. This nationwide lockdown is an unprecedented effort to stop the spread of the virus, something no other country has even attempted yet, if this move doesn’t show how serious the epidemic has become. Of course, Italy now has the most deaths from the coronavirus outside of any country apart from China, with 463. You really can’t expect a major European country to enter complete lockdown and not expect the markets to react negatively. In combination with all the other factors, and its no surprise investors seem to be expecting a global recession. Not too long ago, I wrote an article looking at whether or not the coronavirus would cause an economic recession. And it certainly looks to be going that way now more than ever. Perhaps these market movements were just the result of a panic selloff. At the time of writing, stocks have now made a slight rebound after the initial crash, with the Dow back up 800 points. However, there is no denying that with the current market sentiment, the outlook is unbearably negative. It’s looking like things are going to have to be worse before they get better. One thing’s for sure, this level of market volatility isn’t going anywhere anytime soon. For more information, watch our video here by Anish Lal here at BlackBull Markets, or on Instagram and Twitter at blackbull_markets and @blackbullforex, respectively. www.youtube.com
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by BlackBull_Markets